Ask PG: Why do you think Africa cannot produce global scale start ups?

Every third order my company receives from Nigeria is a scam. The cheap, effective and over reaching solution to this issue is to simply stop shipping to Nigeria. This is the path I chose and the one that most small business owners will choose.

Perhaps we're missing out on some money but the cost in time and effort to capture that little bit of money isn't worth it relative to other projects. I'm in business to ship product to those who will reliably pay, not to figure out which of my customers will actually pay ahead of shipment. If I can't know, I won't risk it.

I don't think my experience is unique. I think this situation has repeated itself in most small businesses in America. I think this group of individual experiences has been generalized as "It costs too much to do business with Africa". Unfair? Sure. Poor Logic? Absolutely. Am I going to change this? No. Its not worth my time and effort.

I'm also going to be very skeptical of business deals or services originating from Nigeria. Do you see a mint.com or inDinero taking off in Africa? Would you personally trust your financial data to such a service and if so, what are your reasons given your lack of recourse through rule of law?

I believe what I'm saying here is what most are thinking, but won't say. I want to lay out what it looks like in the trenches on this side. I fully realize that I am half of the reason that this situation exists. Until I need your money more than you need my services, I do not see it changing. I know that is harsh, but I sincerely believe it to be the case.

I hope things improve. I hope bad experiences are replaced with good ones and Nigeria specifically and Africa generally are looked at as reliable business partners. I hope you create a ridiculously successful business. Most importantly, I hope you'll take this post in the spirit in which its offered.

Preface: I am just another ignorant westerner. Any one of my impressions of these countries could be so wrong as to make my conclusions meaningless. If I'm wrong, please be gentle.

I believe there's some differences of scale here. China and India both have over a billion people. With 10x the population of Nigeria, even with identically bad property rights and legal systems (and I suspect that both India and China are somewhat better off in that regard than Nigeria), with that difference in addressable market you'd expect more startups out of them.

Russia -- which has a shrinking population now roughly the same as Nigeria's rapidly-expanding one -- is a more interesting comparison. I think the only difference here is that Russia was formerly a wealthy country (as opposed to a country in which a few extremely wealthy people live) which invested heavily in education, while Nigeria is a formerly poor one that has yet to catch up.

So if Nigeria were to suddenly pour as much money into education as the USSR did, you might expect a flood of Nigerian startups in a decade's time. But that would explain why there aren't too many of them right now.

There's the pricing factor too... a population with a median income of between 2 and 10% of US median income simply isn't going to buy SaaS subscriptions in comparable volumes at comparable prices to US companies. For much the same reason, these consumers are also worth less in raw money terms to advertisers. which means a lot less revenue for typical Y-combinator startups in African domestic markets even before transaction costs (quite possibly higher?) are taken into account.

Well, my one datapoint on this whole matter is that the overwhelming majority of scams on my sites come from that region of the world, so I'm about ready to write off the whole continent in terms of doing business. If I were to write a bayesian scam filter, "Comes from Africa" would be one of the most important positive signals.

I would assume that many other businesses have shared this experience and come to the same conclusion. Things are getting better, I'm sure, but they're not near the "worth my time" threshold yet.